US coking coal producers say spot prices have yet to hit a ceiling, despite the lull in China, as buyers digest surging offer levels and plans by top economic planning body the NDRC to stabilise steel and iron ore prices.
While last week's US low-volatile offers approaching $300/t cfr China and a dip in Chinese steel prices has checked buying, suppliers and buyers say demand is unchanged.
Mongolian exports to China are still affected by Covid-19 restrictions at the Ceke and Ganqimaodu border posts, while US, Canadian and Russian alternatives to Australian coal have covered just over half of China's regular imports. China imported 14.74mn t of coking coal in January-April, down from 27.08mn t a year earlier.
Chinese mills have also looked to domestic mines to supply some of their needs. But a supply gap remains, and this is reflected in the rise in US prices since the second half of last year. Premium low-volatile US coals, such as Oak Grove and Blue Creek 7, are a natural fit for China and have led the increase in prices. The rise in Atlantic low-volatile coking coal prices has extended to US high-volatile material since late last year. Arch Resources concluded a 300,000t year-long deal for high volatile A coal into China in December, and more recently sold a spot cargo into China at $179/t fob Hampton Roads. The share of Metinvest's US coal in China has also grown, with its low-volatile Affinity coals well received and its Wellmore and Carter Roag brands increasingly visible.
Prices are still below the highs of 2018, when US values rose in line with Australian values. In January 2018, Argus-assessed Australian premium low-volatile prices hit the year's high of $260.50/t fob and averaged $207.42/t fob for the rest of the year, reflecting Chinese demand. In the same year, US low-volatile coal hit a high of $206/t fob Hampton Roads and averaged $188.17/t fob, driven by strong Australian prices. The US high-volatile A price averaged $198.11/t fob Hampton Roads in 2018, and hit a high of $218/t.
While China also imposed import controls on coals in 2018, it was a general ban to support domestic coal mining — not a ban on Australian coals alone. US coal exports to China were subjected a 25pc tariff from late August 2018, removing 2.8mn t, or 4pc, of China's coking coal imports in 2017. With Beijing lifting the tariff last year, US firms' access to China has improved. Chinese buyers started seeking US spot cargoes in late February 2020, ahead of tariff exemptions that began on 2 March.
US producers are only restricted by their ability to offer sufficient volumes, following last year's output cuts of around 20pc and maximised term commitments to European, South American and domestic buyers.
Chinese buyers still expect the falling steel prices of the last week and deteriorating steel margins to limit acceptance of rising coking coal prices. Some Chinese participants say prices could start falling in June, particularly as many late-June and July-loading US cargoes are understood to be held by trading firms, rather than mills.
The high cost of freight has also compounded the rise in cfr China prices, which was largely driven by demand and tight supply. But as long as restrictions are in place on the Mongolia border, Chinese mills will have little choice but to look to US, Canadian and Russian imports. Panamax rates for coal cargoes on the route from the US east coast to China are estimated at $50-55/t this week, up by about $20/t from the start of this year.
Other pressure points
US coking prices are supported by other factors, including strong export demand from Europe and Brazil, and domestic demand.
US domestic demand has been strong since the second half of last year, with the Argus-assessed domestic Midwest hot-rolled coil (HRC) assessment exceeding $1,600/st yesterday. Coke consumption in the US has been strong as a result, and US integrated steelmaker Cleveland Cliffs is due to restart its Monessen coke plant in August, adding to domestic demand.
US met coke producer SunCoke Energy returned to full capacity in the first quarter and is investing at the Jewell coke plant in West Virginia to allow it to start producing foundry coke. Jewell currently sources around 1mn st/yr of coal from Virginia and southern West Virginia.
New high-volatile A production coming to market from Arch Resource's Leer South project in the third quarter is expected to find buyers in China. Since the 2018 import bans, Chinese mills have been adjusting their blends to reduce reliance on Australian coal, shifting towards burning more imported high-volatile material with domestically produced coal.
